What is a member-funded society?

A member-funded society is a society that exists primarily for the benefit of their members. It does not receive public donations or government funding beyond the threshold set in the regulations. Examples include professional or trade associations, or social or sports clubs. In its constitution, the member-funded society must declare: “This society is a member-funded society. It is funded primarily by its members to carry on activities for the benefit of its members. On its liquidation or dissolution, this society may distribute its money and other property to its members.”

What kinds of societies cannot become member-funded societies?

Societies that cannot become member-funded societies include:

societies that have received public donations, government funding, or a combination of the two with a total value greater than $20,000 or 10%, whichever is greater, of the society’s gross income within a period of two financial years immediately preceding the current financial year of the society,

societies that are registered charities as defined in the Income Tax Act,

societies that are designated recipients of the Provincial Sales Tax Act or are otherwise entitled to receive taxes, fees, or other revenue received by the government as agents of the society,

are student societies as defined in the College and Institute Act or University Act,

are hospitals or manage/operate a community care facility as defined in the Hospital Act, or that are designated as hospital societies, or

are in a class of societies that is prohibited under the regulations from having the statement in its constitution

If you still have questions, the Registry has a useful table on page four of their Transition Guide that helps determine whether a society can become a member-funded society: BC Registry Transition Guide

How do we decide whether to transition as a member-funded society?

Member-Funded Society – A Challenging Choice (by Paul Wood)

As Chair of the Governance Committee of a society serving a reasonably sophisticated community, working our way through the new Societies Act, the Constitution and Bylaw review necessary for all societies in BC at this time, and the key considerations, thoughts turned to Part 12, Division 1, which provides for Member-Funded Societies.

Preparing for B.C.’s New Societies Act: A Guide to the Transition Process, tells us:
On transition, each pre-existing society will be asked whether it wishes to designate itself as a “member-funded society” by including a statement to that effect in its constitution. A member-funded society is a society that is funded primarily by its members to carry on activities for the bene t of its members. Common examples might include some sports clubs, golf courses and professional associations.

This seemed a perfect fit for us. Although a society cannot be a member-funded society if it receives public donations or government funding beyond specific thresholds, there was a high degree of confidence that this fit our circumstances, until we spoke with a lawyer. Working through the language of the Act and the due diligence necessary to come to a confident conclusion, doubts crept in. Shifting the focus from the due diligence of an historic review of financials, decisions and minutes over at least the past two years, to a view looking forward, and the potential constraints selecting member-funded status might impose on future directions and decision-making, doubts were no longer merely creeping, they were striding confidently.

At this point, it was prudent to step away from thinking solely from the perspective based on first impression, “of course we are member-funded”, to one that turned things around and looked at the decision from the point of view of what does member-funded status achieve. What are the benefits?

Member-Funded Societies Considerations

s. 28 Financial Statements: no right of access to public

Is it really appropriate and in the society’s best interests to restrict public access? What are the implications?

Are there circumstances where public access should take place?

How will access be policed?

s. 36 Disclosure of remuneration on Financial Statements: no need to disclose director remuneration or salaries paid to senior staff in notes to financial statements

Is it appropriate, even in a member-funded society, to not be open and transparent about director remuneration and senior staff salary?

Shouldn’t the members be entitled to this information?

s. 40 Number of Directors: only one director required, none need be ordinarily resident in BC

Clearly this applies to a very small and peculiar set of societies.

s. 41 Employment of Directors: no restriction on number of Board members employed by or under contract

What are the circumstances or nature of a society where it would be appropriate to have a majority of the board to be employed by, or in a contractual relationship with, the society? Is this in a society’s best interest?

s. 124(2) Distribution of assets on winding up: the constraints of this section do not apply and distribution can be made to any person specified in the bylaws or by ordinary resolution

Is it in a society’s best interest that the distribution of its assets on winding up would be subject to an ordinary resolution? Or even a bylaw, subject to change?

s. 154(2) Property held in joint tenancy: the constraints of this section do not apply and property simply devolves to other joint tenants

Is it the case now, or is it likely to be the case, that the society holds, or would hold, property in joint tenancy with an entity other than another society (not member-funded) or charity or community service cooperative as defined by the act?

s. 198 Conversion: can be converted to a company under the Business Corporations Act

Is this likely to ever be the case?

In the end, in our circumstances, the decision was one of balancing the “real” benefits of member-funded status against the need for proper due diligence in ensuring our society met the detailed tests set up in the new Act, and the constraints that it would impose on the society in terms of receiving public donations or government funding in the future.

Cautions

Becoming a member-funded society is a significant choice that needs to be authorized by a special resolution of the members … If you have any doubt about whether your society can or should become a member-funded society, you should seek legal advice before transitioning.

Member-funded designation is a choice that must be made on transition, otherwise a court order is needed. It is one of the most challenging areas of the new Societies Act.